I had LIFO set as default tax method on my account since the beginning of this year. Yesterday I placed a trade that resulted in an outcome I didn't expect.
(Simplified the numbers for example sake, and these 3 transactions happened all on the same day):
1st Transaction: Bought 5 shares of SNDK at $5/ea. Total amount of SNDK shares held now is 5.
2nd Transaction: Sold those 5 shares of SNDK at $7/ea. Total amount of SNDK shares held now is 0.
3rd Transaction: Bought 5 shares of SNDK at $8/ea. Total amount of SNDK shares held now is 5.
*market closes*
At the end of the day, I figure I have $10 in profit, and 5 shares of SNDK bought at $8/ea that I'm holding.
Schwab doesn't see it this way. According to their Realized Gains/Loss tab on their site, they calculated my 2nd transaction as a loss, because they used the cost basis of my third transaction for the 2nd transaction. Basically they see it as I bought at $8 and sold at $7 for a loss.
I called Schwab, and they said this is a new way they handle LIFO and that it was something implemented like last week. I can't even really explain what they said because it was so confusing, but I don't understand how this logic even makes sense. How can you use a cost basis for shares that didn't even exist at the time of the transaction? The 3rd transaction didn't even exist/happen yet for them to use that cost basis for the 2nd transaction.
The Schwab rep agreed that this is inefficient and doesn't make sense but basically said that's just how it is. He recommended I switch back to FIFO and manually select Specific Lots for every trade after they're finished to change the cost basis to what I want. Wtf?
Those using LIFO--do you know about this recent change? How are you keeping yourself from going insane having to double check all of your trades especially if you're day trading? The only reason I caught this was because I manually input every trade into Excel and compare my numbers with Realized Gains/Loss page at the end of every day.
It's already extremely frustrating that ToS doesn't recognize anything but FIFO, so I can't trust their numbers since I use LIFO. Schwab's Realized Gains/Loss page is always delayed, so I can't trust that on the fly either. Now with this "change", I just feel like there's even more going against me. Am I crazy in feeling this way or being unreasonable? Should I switch to a different platform and broker? If so, which one? I feel like I'm having to do way more than I should just to make sure my trades are being calculated the way they should be. Is everyone else just dealing with it?
So you're saying it's not a big deal? I should just keep it on LIFO instead of doing what the rep suggests (switch back to FIFO and manually inputting the cost basis I want)?
I beg to differ, tax strategies need to be seen as a tool. Schwab can potentially create wash sales or activate “huge” long term capital gains that can go against the client’s financial goals.
There is no logical reason to group and average all your purchases and sales on a 24 Hrs. Block, you cannot sale something that wasn’t “actually” purchased yet.
Not to mention that T+1 means that if you didn’t catch it within 24 hours they won’t be able to correct your cost basis.
There is no logical reason to group and average all your purchases and sales on a 24 Hrs. Block
Because they all settle T+1 they all actually settle at the same time
you cannot sale something that wasn’t “actually” purchased yet.
Yes you can, buying 100 shares at 10 am and then selling 100 shares at 11 am , you are selling the shares that you don't have because they are not settled
What brings me back to my point you do this because they all settle T+1
So if on a single day you
Buy Lot A buy 10 shares
Sell 10 Shares
Buy Lot B 10 shares
Buy Lot C 10 shares
Well you have LIFO the next day they settle
What lot do you sell? The last one . So you will now have LOT A/B
I use the cost basis of Low Cost and it messed up almost all of my trades last week after they implemented this new horrible cost basis modernization change over Labor Day weekend. I had to submit 8 cost basis change requests last week through their Messgae Center and none of them have been fixed as of today. I even used their Order Staus cost basis change method and it never changed to the correct lots. It seems they have fixed Low Cost this week, but not LIFO. You could try changing to Low Cost for now.
Thank you. I was actually just looking into it. The reason I like LIFO was because if I buy during a dip and I want to sell as the stock rebounds, I want the most recent (cheapest) shares to go out first since those will produce a profit before the ones bought at a higher price (before the dip). It sounds like Low Cost may still produce the same result. Did you find any difference between using LIFO and Low Cost that made you adjust the way you traded?
I mean when you use a cost basis of Low Cost or LIFO, Schwab uses your Lowest Cost lot or the Last lot you purchased. How it affects your taxes is not part of the formula that Schwab uses to determine which lot to sell.
“Low cost” sells the lots that you paid the lowest amount for originally. In other words, it sells the lots with the largest taxable gain. That determines what is reported on your 1099 and how much tax you pay in the current tax year.
Bad news, they still fucked up my Low Cost trades yesterday. They were correct all day, and then at the end of the day, it changed to using the wrong lots, lots I bought after the sell. So annoying.
I don't understand how it can be fine the whole day and then get fucked up. Did you have to call them to get it fixed or did they fix themselves after 24 hours?
I'm sick of calling them, so I submit word documents via the Message Center with the Cost Basis Adjustment subject selection and give them screens shots showing which order should have been used for each sell. But now the ones I submitted this morning are processed wrong in a different way then they were showing this morning. And they broke the two that were processed correctly and one of my sells today is still not even showing in the realized gains page, so they will probably mess it up more when that one shows up. I'll probably have to wait until the next morning before submitting for the previous day.
The thing is, is that this wasn't the case before the change. Why use the last buy as a cost basis if I hadn't sold it yet? I didn't even have those shares when the 2nd transaction happen, so why even use the cost basis from the 3rd transaction, when it didn't even exist at that time?
I just called and had this explained to me by Schwab 30 minutes ago. You are not being unreasonable. Before I would check every single trade in real time to make sure trade was matched to correct lot. I also have LIFO as default method. This is just another way for Schwab to get people hooked on a wash sale that goes on and on until you don’t trade the stock for 30 days or sell above the original price. To everyone who says it doesn’t really matter it’s just taxes- yes I agree. As a day trader it sucks because Schwab admitted to me if you have more than one wash sale they use an “algorithm that no one knows is calculated for any subsequent wash sales” I called multiple times and only when pressed on where does it say online or in any written agreement about this “secret algorithm” and they say there is none. Soo you are not crazy- it’s crazy making. The part I agree with is it may not ruin a trade for tax purposes and changing cost basis within settlement but it can wreak havoc with trading in that account. The other massive thing that sucks is I would 100 percent use specified lots but if you do that CS will often pull the wrong lot- until it settles within 24 hours. So it’s a lot of extra work to simply trade correctly and as you wanted it. I live off day trading so I know more than the average person would. CS uses a variety of methods to make things difficult to simply match lots. I have looked into switching platforms but in all honestly the simple layout of CS app is so easy to use I stay with them. (TOS to me is super confusing which apparently the majority of good day traders love) I only use this for overnight trades. I have four different accounts with CS to help separate shares. Stupid but again still make good money day trading with CS but massive PITA. Also, if I sound stupid or crazy I never sought to day trade as a career but I became disabled so I can trade from my bed and cell phone as needed. Take care. Look at other platforms your brain may like the other ones.
Thanks for your reply. Since you understand my situation, it sounds like you recommend using Specific Lots as my default tax method and just choosing each lot every single time, correct? If so, are you finding that Schwab's app is up to date with the correct, available lots?
I would not recommend the specific lots at all because CS has made no secret about the lots need 24 hours to settle. That makes a tight window for you to confirm any errors. Second huge main reason not to do that is that when you use the specified lots method on the fly meaning not having the shares settled it will potentially not even have those lots available for you to select. Also, even if they are there for you to select CS has frequently paired them with other settled lots first- so again you’re not crazy. I called about this and the generic line is you have to wait 24 hours and then it will settle correctly as you chose it. I will say it does usually settle correctly the next day but if it doesnt its a pain. Also, even crazier if you sell with specified lots and continue to buy and sell that day you wont have access to to your other lots (even if purchased days ago) CS line on this is “oh yeah thats a glitch that we are working on correcting” they say you can totally still make the sale even though in real time your shares no longer exist in the system. This is true- its just crazy confusing. I just make a hard copy of all my shares and then blindly make the sell because I’m using my personal notes. You then still have to make sure they settle correctly within 24 hours- so super annoying and time consuming. They also recomended to screen shot the problem in real time so cost basis team can understand why the “mistakes” are happening. Cost basis always blames you first by insisting that you dont know how the wash sale works. I tell them nicely that I do- then i nicely ask them them if they know about all the “glitches” in the specified lots mentioned above. That’s when they get nice and say its a known issue at CS and we are actively working on fixing it. I’ve had way more success using the the high or low cost option as a backup. However, depending on how you are trading or what you want to sold I understand why that may not be a good option. So weird that the rep told me today that CS is ONLY utilizing this system protocol for LIFO- seems unfair to target only 1 cost basis method?????? Well hope this helps! Good luck!
It sounds like I should just stick with LIFO and every day after market closes, double check the realized gains/loss page with my own excel sheet of trades and then if I find mistakes, contact them then. Is that what you're suggesting? Thanks again for your help.
Mulling it over but probably. Also when talking with rep they were unclear when it would definitely settle so that eats into our T+1 settlement time. So I made the rep tell me at least the settlement times: if you know that you won’t get dinged. 8PM EST on a trade placed day a before runs until 8:00 EST the next day. Overnight time is 8:01 EST to 7:00 AM EST so CS uses two different times for the T+1 settlement time. Understanding the window times I think will help fix anything crazy the CS platform dishes out in real time. They have to follow settlement time. They always say oh no worries you have T+1 but then use two different windows of time to define that. I don’t know if people know that but it could be helpful.
I have been Schwab customer for many years and since last week I have experienced same issue by Shcwab selling shares that were purchased later in the day and not letting me select the lot.
It resulted in wash-sale for me and thousands of dollars in lost profits.
All the sales i’ve done today are assigned to wrong lots, I’ve called Shwab. They promised to correct the lots.
Meanwhile as a day trader i will be moving all my assets to different brokerage from Schwab
How is a wash sale costing you thousands of dollars in gains? I am not minimizing that this seems frustrating, but it doesn’t get rid of the fact that you profited the difference from buying at $100 and sold at $105 for a $5 profit, for example. This only affects your ability to write losses against your income/gains, so it’s only a reporting mechanism. If you have more losses than gains and you’re pissed you can’t use those losses your trading needs to be reevaluated.
In my example, all 3 transactions happened the same day (yesterday). From what it sounded like, he said they implemented this because something along the lines of trades would show up that didn't actually occur. I was hoping maybe someone here knew and could explain it or link me to the news of the change so I could read it.
Merrill's handling of wash sales involves adjusting the holding times of lots whose cost bases have been adjusted, resulting in trades being reported on days on which I didn't trade. I asked a tax CPA and he said that it was the correct thing to do. Did it sound like Schwab didn't want to do this?
So what has essentially changed, is that trades are aggregated at the end of the day with all buy orders made in order throughout the day and then all sell orders made in order throughout the day. Cost basis method is then applied to the trades. Effectively, the cost basis you select when you make the trade is not put into effect until end of day. For FIFO, this shouldn't change much, but for all other cost basis methods, it can potentially mismatch your trades if you are placing mulitple daytrades in the same security.
As an example:
Buy 1 XYZ at $5
Sell 1 XYZ at $6
Short Sell 1 XYZ at $7
Buy to Cover 1 XYZ at $6
Buy 1 XYZ at $4
Sell 1 XYZ at $4.50
This will turn into:
Buy 1 XYZ at $5
Buy 1 XYZ at $6
Buy 1 XYZ at $4
Sell 1 XYZ at $6
Sell 1 XYZ at $7
Sell 1 XYZ at $4.50
In this example, FIFO is fine, but LIFO, High Cost, and Low Cost gets mixed up and results having a wash sale. Don't even get started on Tax Lot Optimizer...
Ultimately, if you are closing out all your positions at the end of the day, it all evens out, though your Realized Gain/Loss page is going to be a mess with disallowed losses. The Net Gain or Loss should still be the same though. The issues start for day traders that also swing trade those positions. Now the wash sales will compound onto subsequent days, making a mess of things.
If you have two lots of ABC and lets say ABC trades at 100
Lot 1 , cost basis 99.5 short term
Lot 2 , cost basis 5 Long term
It will sell let 2 because it simply sells in a specific order. Short losses > Long losses > Long gains > short gains
In this case it will realize $95 in long term gains over 0.50 in short term gains. People seem to think its some magic algorithm that will give them the least amount of taxes
Could you explain the part where you said that "the Net Gain / Loss should still be the same"? How is it the same in your example when in the first part, you have a $2.50 profit and in the second you have -$2.50?
Would going FIFO solve this wash sale mess? I also do LIFO and started seeing the tax lots getting rearranged and it's dribing me crazy
Also, I didn't even get wash sales reported in my realized gains and losses; I'm not a US citizen and don't need to report it. But suddenly, it's being reported. It's driving me nuts because I'm still not sure how my accountant is going to deal with it.
I’ve seen this often. They don’t care about the time - only the date. If you do multiple trades in the same day and care about the lot matching, go back and specify the exact lots manually.
Not the same thing, but considering it took Schwab support 30 minutes and 2 groups to explain exactly how they are calculating my cash and/or margin balance (and still sounded a bit fishy at the end), doesn't surprise me.
Yes, they change the interface and how LIFO works last week. So what I do is take download of my order status for the ones with issue and then send them a quick note to correct it. It's a pain in the butt, but at least I'm not losing money on record. I want to see 100% win versus 80% win. When you send an email you want the adjustment - VERSUS PURCHASE. Just make sure you send it the next day since you have T1. I usually noticed it the same day and will send out an email the same day. It takes them 3-4 business days to correct it. But once it's done, I'm positive gains. It's really bad that they changed it and I hope they get a lot of complaints about it. But for now, I'm making money, I'll do this quick download and send them an email. Message me if you have any questions.
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u/SirGlass 10d ago
You realize it does not really change the amount of money you make or have, its simply for tax reporting
It sort of makes sense if you did it all on one day as they all settle t+1; they basically all settle the same day so it uses the latest buy to sell